SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss240.14a-11(c) or ss240.14a-12
Liberty Financial Companies, Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
<PAGE>
20,466 Exchange Act--Regulations 1787 10-8-97
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3) Filing Party:
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4) Date Filed:
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<PAGE>
[LOGO] LIBERTY
FINANCIAL
Liberty Financial Companies, Inc.
600 Atlantic Avenue
Boston, MA 02210-2214
March 27, 1998
To my fellow Stockholders:
I am pleased to invite you to attend the 1998 Annual Meeting of
Stockholders of Liberty Financial Companies, Inc. The Meeting will be held on
Monday, May 11, 1998, at 11:00 a.m. in Room AV-1 on the third floor of The
Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, Massachusetts.
The accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement set forth the business to be presented at this year's Meeting and
certain other information about Liberty Financial and its officers and
directors.
If you plan to attend the Meeting, please bring a form of personal
identification with you and, if you are acting as proxy for another, please
bring written confirmation from the record owner that you are acting as proxy.
Whether or not you expect to attend the meeting, please sign and date the
enclosed form of proxy and return it promptly in the accompanying envelope to
ensure that your shares will be represented. If you attend the Meeting, you may
withdraw any proxy previously given and vote your shares in person.
Cordially,
/s/ Kenneth R. Leibler
Kenneth R. Leibler
President and
Chief Executive Officer
<PAGE>
[LOGO] LIBERTY
FINANCIAL
LIBERTY FINANCIAL COMPANIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 11, 1998
To the Stockholders of
LIBERTY FINANCIAL COMPANIES, INC.
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
Liberty Financial Companies, Inc. will be held in Room AV-1 on the third floor
of The Federal Reserve Bank of Boston at 600 Atlantic Avenue, Boston,
Massachusetts, on Monday, May 11, 1998, at 11:00 a.m. (the "Meeting"), for the
following purposes, all as set forth in the attached Proxy Statement:
(1) To elect five Directors for new three-year terms expiring at the 2001
Annual Meeting of Stockholders; and
(2) To transact such other business as may properly come before the Meeting
and any adjournments thereof.
The Board of Directors has fixed the close of business on March 20, 1998
as the record date for the Meeting.
It is important that your shares be represented at the Meeting regardless
of the number of shares you may hold. Please complete, sign and date the
enclosed form of proxy and return it promptly in the enclosed envelope which
requires no postage if mailed within the United States.
By Order of the Board of Directors,
/s/ John A. Benning
John A. Benning
Clerk
Boston, Massachusetts
March 27, 1998
<PAGE>
[LOGO] LIBERTY
FINANCIAL
LIBERTY FINANCIAL COMPANIES, INC.
PROXY STATEMENT
FOR THE
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 11, 1998
This Proxy Statement, with the accompanying proxy card, is being mailed to
Stockholders on or about March 27, 1998 and is furnished in connection with the
solicitation of proxies by the Board of Directors of Liberty Financial
Companies, Inc. ("Liberty Financial") to be used at the 1998 Annual Meeting of
Stockholders to be held on May 11, 1998 (and any adjournment thereof) (the
"Meeting").
VOTING INFORMATION
The Board of Directors has established March 20, 1998 as the record date
for the Meeting (the "Record Date"). Holders of shares of Liberty Financial's
Common Stock, $.01 par value ("Common Stock"), and holders of Liberty
Financial's Series A Convertible Preferred Stock, $.01 par value ("Preferred
Stock"), whose names appeared of record at the close of business on the Record
Date will be entitled to vote at the Meeting. On that date, 45,012,778 shares
of Common Stock and 326,236 shares of Preferred Stock were issued and
outstanding. Each issued and outstanding share of Common Stock will be entitled
to one vote on each matter to be voted on at the Meeting. Each issued and
outstanding share of Preferred Stock will be entitled to 1.58385 votes (i.e.,
the number of shares of Common Stock into which one share of Preferred Stock
was convertible on the Record Date) per share on each such matter. The Common
Stock and the Preferred Stock will vote together as a single class on those
matters presented for approval at the Meeting. Shares of Common Stock and
Preferred Stock can be voted only if the owner of record is present to vote or
is represented by proxy.
If you sign, date and return the enclosed proxy card in time for the
Meeting and do not subsequently revoke it, your shares will be voted in
accordance with your instructions as marked in the spaces provided for such
purpose. If no instructions are specified, your shares will be voted FOR the
election of the nominees for Director.
You may revoke your proxy at any time before it is exercised by returning
to Liberty Financial another properly signed proxy representing such shares and
bearing a later date or by otherwise delivering a written revocation to the
following address: Proxy Services, Boston EquiServe, P.O. Box 9379, Boston,
Massachusetts 02205-9956. A Stockholder attending the Meeting may vote in
person even though he or she may have previously filed a proxy.
The holders of a majority in interest of the combined voting power of the
Common Stock and the Preferred Stock issued, outstanding and entitled to vote
at the Meeting are required to be present in person or be represented by proxy
at the Meeting in order to constitute a quorum for the transaction of business.
The election of nominees for Director will be decided by plurality vote of the
shares represented and entitled to vote at the Meeting.
Abstentions and broker non-votes will be treated as shares present or
represented at the Meeting for quorum purposes. On each proposal considered at
the Meeting, abstentions will have the effect of negative votes, while broker
non-votes will be disregarded (i.e., they will not be considered shares
entitled to be voted on the proposal).
<PAGE>
As of the Record Date, Liberty Mutual Insurance Company ("Liberty
Mutual"), owned beneficially shares of Common Stock representing approximately
72.3% of the combined voting power of the Common Stock and the Preferred Stock.
LFC Holdings has indicated that it will vote its shares in favor of each item
proposed for approval by the Board of Directors at the Meeting.
ELECTION OF DIRECTORS
(Proxy Item 1)
There are currently 18 members of the Board of Directors, divided into
three classes with terms expiring at the 1998, 1999 and 2000 Annual Meetings,
respectively. One Director whose term expires in 1998, Gregory H. Adamian, is
retiring and will not stand for reelection. The Board of Directors has fixed
the number of Directors in such class at five and nominated the Directors set
forth below for reelection at the Meeting for three-year terms of office that
will expire at the 2001 Annual Meeting. All of the nominees were elected to
their current terms in 1995.
Each Director will continue in office until the Director's term expires
and until his successor is elected and qualified or until his death,
resignation or removal.
Management has made inquiries and believes that each of the nominees will
be willing and able to serve if elected. If any of the nominees shall be
unwilling or unable to serve, discretionary authority is reserved to vote for a
substitute chosen by the Board of Directors, or the Board of Directors may
reduce the number of Directors.
Biographical information is set forth below with respect to the Director
nominees and the Directors whose terms of office expire in 1999 and 2000.
Nominees For Election As Directors
Terms Expire at the 2001 Annual Stockholders' Meeting
<TABLE>
<S> <C>
GERALD E. ANDERSON Retired; from 1974 until his retirement in 1992, President, Chief Executive
Age 66 Officer and Trustee of Commonwealth Energy System, a public utility holding
Director since 1991 company; Director of Liberty Mutual and Liberty Mutual Fire Insurance
Company ("Liberty Fire"), an affiliate of Liberty Mutual.
EDMUND F. KELLY President and Chief Operating Officer of Liberty Mutual and Liberty Fire since
Age 52 1992; Director of Liberty Mutual and certain of its affiliates.
Director since 1992
KENNETH R. LEIBLER Chief Executive Officer of Liberty Financial since January 1, 1995; president
Age 48 of Liberty Financial since August, 1990; Chief Operating Officer from August,
Director since 1991 1990, until December, 1994; Director of the Boston Stock Exchange.
RAY B. MUNDT Chairman and Chief Executive Officer of Unisource Worldwide, Inc., a paper
Age 69 supply and systems company, since August, 1996; prior thereto Chairman and
Director since 1991 (prior to September, 1993) Chief Executive Officer of Alco Standard Corporation,
a distributor of paper packaging products and office equipment; Director of Liberty
Mutual, Liberty Fire, Alco Standard Corporation, Corestates Bank, Nocopi
Technologies, Inc. and Unisource World Wide, Inc.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
GLENN P. STREHLE Treasurer of the Massachusetts Institute of Technology and Vice President since
Age 62 1986 (becoming Vice President for Finance and Treasurer in June, 1994); director
Director since 1991 of Liberty Mutual, Liberty Fire and BankBoston Corporation and a Trustee of
Property Capital Trust.
</TABLE>
Directors Continuing in Office
Terms Expire at the 1999 Annual Stockholders' Meeting
<TABLE>
<S> <C>
PAUL J. DARLING, II Chairman, President and Chief Executive Officer of Corey Steel Company, a
Age 60 manufacturer of cold finished steel bars and a metal service center, since 1984;
Director since 1991 Director of Liberty Mutual, Liberty Fire and Unisource World Wide, Inc.
DAVID F. FIGGINS Retired; from 1993 until his retirement in 1994, Chairman of Trafalgar House
Age 69 Construction, Inc., a construction company; President thereof from 1991 to
Director since 1991 1993; Director of Liberty Mutual, Liberty Fire and First Bell Bancorp, Inc.
JOHN B. GRAY Retired; from 1986 until his retirement in 1990, President of Dennison
Age 70 Manufacturing Company, a manufacturer of self-adhesive materials and office
Director since 1991 supplies; Director of Liberty Mutual, Liberty Fire, EG&G Inc. and Stackpole
Corporation.
RAYMOND H. HEFNER, JR. President of Bonray, Inc., an oil and gas exploration company; Director of
Age 70 Liberty Mutual, Liberty Fire and Gulf Canada Resources Limited; also a
Director since 1991 Director of Liberty Bancorp, Inc. (which is not affiliated with Liberty Financial
or Liberty Mutual).
THOMAS J. MAY Chairman, President and Chief Executive Officer of Boston Edison Company
Age 50 since 1994; prior thereto President and Chief Operating Officer thereof;
Director since Director of BankBoston Corporation, Boston Edison Company, Liberty Mutual
February 13, 1998 and Liberty Fire.
STEPHEN J. SWEENEY Retired; held various management positions with Boston Edison Company, an
Age 69 electric utility company, serving as President and Chief Executive Officer from
Director since 1991 1984 to 1986, as Chairman and Chief Executive Officer from 1987 to 1990,
and as Chairman from 1990 until his retirement in 1992; Director of Liberty
Mutual, Liberty Fire, Boston Edison Company, the Boston Stock Exchange,
Uno Restaurants, Inc. and Microscript, Inc.
</TABLE>
Directors Continuing in Office
Terms Expire at the 2000 Annual Stockholders' Meeting
<TABLE>
<S> <C>
MICHAEL J. BABCOCK Private investor; from January, 1993 to January, 1995, President and Chief
Age 56 Operating Officer of Leslie Fay Companies, Inc., an apparel manufacturer;
Director since 1991 Director of Liberty Mutual and Liberty Fire. On April 5, 1993, Leslie Fay
Companies, Inc. filed for protection from creditors under Chapter 11 of the
federal Bankruptcy Code.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
HAROLD W. COGGER Executive Vice President of Liberty Financial since March, 1995; President of
Age 62 The Colonial Group, Inc. ("Colonial") from November, 1994 to December,
Director since 1995 1996 and Chief Executive Officer from March, 1995 to December, 1996;
President of Colonial Management Associates, Inc., a wholly owned subsidiary
of Colonial, from 1993 to December, 1996, and Chief Executive Officer from
March, 1995 to December, 1996.
GARY L. COUNTRYMAN Chief Executive Officer of Liberty Mutual and Liberty Fire since 1986, and
Age 58 Chairman of both companies since 1991; Director of Liberty Mutual and certain
Director since 1991 of its affiliates, BankBoston Corporation, Boston Edison Company and
Harcourt General, Inc.
JOHN P. HAMILL President of Fleet Bank of Massachusetts, N.A. since 1992; Director of Liberty
Age 58 Mutual and Liberty Fire.
Director since 1991
MARIAN L. HEARD President and Chief Executive Officer of the United Way of Massachusetts Bay
Age 57 and Chief Executive Officer of the United Ways of New England since 1992;
Director since 1994 Director of Liberty Mutual and Liberty Fire and a Director or Trustee of
numerous national and local non-profit organizations.
SABINO MARINELLA Retired; Chief Executive Officer of Liberty Financial prior to 1995; Vice
Age 68 Chairman of Liberty Financial from January, 1995 to December, 1997.
Director since 1990
</TABLE>
1997 Meetings And Standard Fee Arrangements
1997 Meetings. During 1997, the Board of Directors held five meetings. The
Board has an Executive Committee, an Audit Committee and a Compensation
Committee. No member of the Audit Committee or the Compensation Committee is an
employee of Liberty Financial or its subsidiaries.
Executive Committee. The Executive Committee has and may exercise all the
powers of the full Board of Directors, except as otherwise limited by
Massachusetts corporation law or Liberty Financial's Restated Articles of
Organization or Restated By-laws. The Executive Committee did not meet in 1997.
As of the date of this Proxy Statement, its members were Messrs. Countryman
(Chairman), Leibler, Cogger, Kelly, Marinella and Strehle.
Audit Committee. The Audit Committee is responsible for obtaining and
reviewing independent analyses of Liberty Financial's accounting policies and
procedures, financial controls and financial information provided to the Board
of Directors. The Audit Committee makes reports and recommendations to the
Board of Directors, at least annually, with respect to such reviews, including
matters such as: accounting records, practices and procedures; the annual
appointment of outside auditors, together with the scope, adequacy, cost and
results of the annual audit and the relationship between management and such
outside auditors; the scope and adequacy of internal audit procedures; controls
for disbursement procedures and asset safekeeping; and such other matters as
the Board of Directors may request.
The Audit Committee held three meetings in 1997. As of the date of this
Proxy Statement, its members were Ms. Heard and Messrs. Figgins, Gray, May,
Strehle and Sweeney (Chairman).
4
<PAGE>
Compensation Committee. The Compensation Committee (i) reviews and
approves all director and management compensation, including salaries,
incentive compensation, pension and fringe benefit policies and procedures and
(ii) administers Liberty Financial's employee benefit plans.
The Compensation Committee held two meetings in 1997. As of the date of
this Proxy Statement, its members were Messrs. Countryman, Adamian, Darling,
Babcock, Hamill and Mundt (Chairman). The Compensation Committee has
established a sub-committee consisting of each member of the Committee other
than Mr. Countryman, who for purposes of Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act") is not considered to be a
non-employee director of Liberty Financial. This subcommittee has exclusive
authority for approving transactions involving equity securities of the Company
(including acquisitions [such as grants and other awards] and dispositions
[such as redemptions and other repurchases]) under benefit plans administered
by the Committee involving persons subject to the provisions of Section 16
under the Exchange Act with respect to equity securities of Liberty Financial.
In 1997, each Director attended at least 75% of the total number of
meetings of the Board of Directors and the Committees of the Board on which he
or she served while he or she was in office, except Messrs. Anderson and
Sweeney.
Fee Arrangements. Directors who are officers or employees of Liberty
Financial, Liberty Mutual or their affiliates receive no compensation for their
service as Directors of Liberty Financial. Each member of the Board of
Directors who is not an officer or employee of Liberty Financial, Liberty
Mutual or their affiliates is paid by Liberty Mutual a retainer at a rate of
$25,000 per annum. This rate will increase to $30,000 per annum effective April
1, 1998. Liberty Financial pays each such director a $200 fee for each Board or
Committee meeting attended.
5
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
Common Stock
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock by Liberty Mutual (the only person or
entity known to Liberty Financial to be the beneficial owner of 5% or more of
Liberty Financial's Common Stock), each executive officer of Liberty Financial
named in the summary compensation table appearing elsewhere in this Proxy
Statement, each Director of Liberty Financial who owns beneficially any shares
of Common Stock, and all Directors and executive officers as a group, in each
case as of March 20, 1998. Except as noted in the footnotes to such table,
based on information provided by such persons, each holder of Common Stock has
or will have sole voting and investment power with respect to the shares of
Common Stock set forth below. Unless otherwise indicated below, the address of
each such person is: c/o Liberty Financial Companies, Inc., 600 Atlantic
Avenue, Boston, Massachusetts 02210.
<TABLE>
<CAPTION>
Shares
Owned
Name Beneficially Percentage(1)
- ---- -------------- --------------
<S> <C> <C>
Liberty Mutual Insurance Company
175 Berkeley Street
Boston, MA 02117 ..................................................... 32,903,444 73.1%
Kenneth R. Leibler(2) ................................................. 481,659 1.1%
Harold W. Cogger(3)(4) ................................................ 145,016 *
C. Allen Merritt(2) ................................................... 124,655 *
John W. Rosensteel(2) ................................................. 111,549 *
John A. Benning(2) .................................................... 126,960 *
Gregory H. Adamian .................................................... 1,500 *
Gerald E. Anderson .................................................... 750 *
Paul J. Darling II .................................................... 1,500 *
John B. Gray .......................................................... 300 *
Sabino Marinella(5) ................................................... 502,231 1.1%
Glenn P. Strehle ...................................................... 750 *
Stephen J. Sweeney .................................................... 150 *
All executive officers and directors as a group (26 persons)(6) ....... 1,756,852 3.9%
</TABLE>
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* Less than 1%.
(1) Percentages are calculated pursuant to Rule 13d-3 under the Exchange Act.
Such calculations assume, for each person and group, that all shares which
may be acquired by such person or group (i) pursuant to options presently
exercisable or which become exercisable within 60 days following March 20,
1998 or (ii) upon conversion of shares of Preferred Stock are outstanding
for the purpose of computing the percentage of Common Stock owned by such
person or group. However, those unissued shares of Common Stock are not
deemed to be outstanding for the purpose of calculating the percentage of
Common Stock owned by any other person.
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<PAGE>
(2) Except as indicated below, consists of options to purchase shares of Common
Stock which are presently exercisable or which become exercisable within 60
days following March 20, 1998. Also includes 60,435 shares owned by Mr.
Leibler, 22,065 shares owned by Mr. Merritt, 14,700 shares owned by Mr.
Rosensteel, and 15,878 shares owned by Mr. Benning.
(3) Includes options to purchase 28,350 shares all of which are fully vested and
exercisable, and options to purchase an additional 13,500 shares which
become exercisable within 60 days following March 20, 1998.
(4) Includes 99,395 shares of Common Stock issuable upon conversion of 62,755
shares of Preferred Stock owned by Mr. Cogger.
(5) Includes options to purchase 18,431 shares, all of which are vested and
fully exercisable. Also includes options to purchase 380,918 shares held by
Mr. Marinella's spouse, as to which Mr. Marinella disclaims any beneficial
ownership.
(6) Includes (without duplication), (i) the option shares referenced in notes 2,
3 and 5 above and (ii) Mr. Cogger's shares referenced in note 4 above. Also
includes options to purchase an additional 243,587 shares of Common Stock
held by unnamed executive officers which are presently exercisable or which
become exercisable within 60 days following March 20, 1998.
Preferred Stock
The table below sets forth certain information with respect to the
beneficial ownership of Preferred Stock by each person or entity known to
Liberty Financial to be the beneficial owner of more than five percent of the
shares of Preferred Stock, each executive officer of Liberty Financial named in
the summary compensation table appearing elsewhere in this Proxy Statement who
owns beneficially any shares of Preferred Stock, each Director of Liberty
Financial who owns beneficially any shares of Preferred Stock, and all
Directors and executive officers as a group as of March 20, 1998. Except as
noted in the footnotes to such table, based on information provided by such
persons, each holder of Preferred Stock has or will have sole voting and
investment power with respect to the shares of Preferred Stock set forth below.
<TABLE>
<CAPTION>
Shares
Owned
Name Beneficially Percentage
- ---- -------------- -----------
<S> <C> <C>
Trustees of the Irrevocable Trust
For Children dated September 24, 1985 (of C. Herbert Emilson)(1) ....... 147,515 45.2%
Harold W. Cogger(2) ..................................................... 62,755 19.2%
Merrill Lynch, Pierce, Fenner & Smith, Inc
101 Hudson Street
Jersey City, New Jersey 07302 .......................................... 52,449 16.1%
All executive officers and directors as a group (26 persons) ............ 62,755 19.2%
</TABLE>
- ------------
(1) The trustees of such trust are John A. McNeice, Jr., Davey S. Scoon and
Linda S. Dalby, who share voting and investment power and disclaim any
beneficial ownership. The address of such trust is c/o Linda S. Dalby, Esq.,
50 Rowes Wharf, Boston, Massachusetts 02110.
(2) Mr. Cogger's address is c/o Liberty Financial Companies, Inc., 600 Atlantic
Avenue, Boston, Massachusetts 02210.
In connection with Liberty Financial's acquisition of Colonial (effective
March 24, 1995), each person acquiring shares of Preferred Stock had the right
to become a party to a stockholders agreement (the "Preferred Stockholders
Agreement"). The Preferred Stockholders Agreement provides that a holder of
Preferred Stock who is a party thereto may
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<PAGE>
not transfer the Preferred Stock without the prior written consent of Liberty
Financial prior to the fifth anniversary of the acquisition, except to certain
permitted transferees. The Preferred Stockholders Agreement also provides that
at any time during the first 60 days after the fifth anniversary of the
acquisition (March 24, 2000), each party to the Preferred Stockholders
Agreement may elect to sell to Liberty Mutual, and Liberty Mutual shall be
obligated to purchase, all, but not less than all, of the Preferred Stock then
owned by such party (the "Put Shares") at a price of $50.00 per Put Share
(appropriately adjusted for any changes in capitalization affecting the
Preferred Stock), plus accrued but unpaid dividends through the date of
purchase. Liberty Mutual may designate Liberty Financial (without any further
action or approval by Liberty Financial) or another person or entity as the
purchaser of the Put Shares; provided, however, that no such designation shall
relieve Liberty Mutual of its obligations to purchase the Put Shares if the
designee fails to do so. The restrictions on transfer and the provisions
requiring the purchase of the Put Shares do not apply to any shares of Common
Stock acquired upon conversion of the Preferred Stock, and the Preferred
Stockholders Agreement does not restrict such conversion. Holders of
substantially all of the Preferred Stock are parties to the Preferred
Stockholders Agreement.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires Liberty Financial's executive
officers and Directors, and any persons who own more than 10% of a class of
Liberty Financial's equity securities registered under the Exchange Act
(currently only the Common Stock), to file reports of ownership and changes in
ownership of securities with the Securities and Exchange Commission (the "SEC")
and the New York Stock Exchange. Executive officers, Directors, and persons who
own more than 10% of the Common Stock are required by SEC regulations to
furnish Liberty Financial with copies of all Section 16(a) reports they file.
To Liberty Financial's knowledge, Liberty Mutual currently is the only
stockholder owning more than 10% of the Common Stock.
Based solely on a review of the copies of such reports received by it or
written representations from certain reporting persons that no other reports
were required, Liberty Financial believes that, except as noted below, each of
its executive officers, Directors and 10% stockholders made all Section 16(a)
filings (if any) required during 1997. Sabino Marinella filed a report on Form
5 in March, 1998 reporting certain option exercises that were reportable for an
earlier period in 1997, and certain gifts that were reportable by February 15,
1998.
COMPENSATION OF EXECUTIVE OFFICERS
Compensation Committee Report
on
Executive Compensation
This report has been prepared by the Compensation Committee of the Board
of Directors (the "Committee").
The Committee administers the executive compensation program of Liberty
Financial and its subsidiaries. The Committee comprises the six directors
listed at the end of this report, none of whom is an employee of Liberty
Financial or any of its subsidiaries. Each member of the Committee (other than
Gary L. Countryman) qualifies as a non-employee director for the purpose of
Rule 16b-3 under the Exchange Act. All members of the Committee qualify as
outside directors for purposes of Section 162(m) of the Internal Revenue Code
(the "Code").
The Committee approves all material financial components of the
compensation of the senior executives of Liberty Financial and its
subsidiaries. This report describes Liberty Financial's compensation program
for executive officers and the bases on which the Committee determined 1997
compensation for executive officers, including the President and Chief
Executive Officer ("CEO"), Kenneth R. Leibler, and the other executive officers
named in the compensation tables appearing elsewhere in this Proxy Statement.
8
<PAGE>
Compensation Philosophy and Overview
The primary objectives of Liberty Financial's executive officer
compensation program are:
[bullet] To provide balanced and competitive total compensation that enables
Liberty Financial and its subsidiaries to attract, motivate and retain
highly qualified executives.
[bullet] To create incentives for enhancing Liberty Financial's profitability,
and for attaining its other strategic goals, through performance-based
devices that reward executive officers for achieving corporate and
business unit goals and individual management goals.
[bullet] To align the financial interests of executive officers with those of
stockholders, and to promote Liberty Financial's strategy of
integrating the activities of its various business units, through the
use of performance-based devices tied to corporate-wide goals, as well
as stock-based compensation.
Generally, Liberty Financial aims for executive compensation to be at the
middle range of the market for comparable positions at similar companies for
performance which meets corporate and business unit goals and individual
management goals; above such market range for performance above such goals; and
below such market range for performance which does not meet such goals. Liberty
Financial regularly uses the services of an independent consulting firm
specializing in executive compensation of financial services companies. These
consultants help Liberty Finance determine market levels of compensation for
comparable positions in companies of relevant size and business profile ("peer
companies"). The peer companies used in these surveys generally include
companies in the investment management and annuity businesses. The Committee
considers these survey results in determining executive compensation.
In determining compensation, Liberty Financial uses corporate and business
unit goals derived from business plans presented to the Board of Directors.
Liberty Financial defines such goals generally in terms of objectively
quantifiable criteria. Liberty Financial established these goals on a
corporate-wide basis for the CEO and the other holding company executive
officers. Liberty Financial established goals for executive officers of
separate business units with respect to both the performance of their separate
units and the corporate-wide goals (giving greater weight to the former).
The primary elements of Liberty Financial's executive officer compensation
program are base salary, annual cash bonuses (which vary from year-to-year
depending upon performance measured against corporate and business unit goals
and individual management goals), and long-term incentives in the form of
stock-based compensation.
Base Salary
The purpose of base salary is to attract and retain key executives by
providing a base level of income that recognizes the market value of the
position. Liberty Financial targets base salary for executive officers in the
middle range of the relevant market, with adjustments as appropriate to reflect
the individual's performance and experience. The Committee reviews base
salaries for executive officers annually. The Committee typically approves
merit increases based on performance or unique individual circumstances.
Annual Bonus
Executive officers are eligible for annual cash bonuses. Liberty Financial
bases annual bonus awards on achievement of a combination of corporate and
business unit goals and individual management goals. Each executive officer has
a target bonus expressed as a percentage of base salary. Liberty Financial
weights the target bonus between corporate and business unit goals and
individual management goals (typically giving greater weight to the corporate
and business unit component). Corporate and business unit performance must
exceed a threshold level in order for any portion of this component of the
target bonus to be earned by the executive. This component increases to a
specified cap if corporate and business unit performance exceeds the target
levels. Similarly, the individual component also is subject to certain
thresholds and multipliers.
9
<PAGE>
Stock-Based Compensation
Liberty Financial's Amended and Restated 1995 Stock Incentive Plan (the
"1995 Incentive Plan") provides stock-based compensation which allows senior
executives and other key employees to participate in the future growth of
Liberty Financial, thereby aligning their interests with those of stockholders.
Stock-based compensation also promotes Liberty Financial's strategy of
integrating the activities of its various business units, since the future
value of its stock will reflect its consolidated results, rather than the
performance of any particular business unit or units.
Prior to 1997, awards under the 1995 Incentive Plan consisted solely of
stock options. The exercise price of each option granted is set at fair market
value on the date of grant. Each option has a life of 10 years and becomes
exercisable in four equal annual installments beginning on the first
anniversary of the grant date. In 1997, the Committee began granting a portion
of awards to a select group of senior executives in the form of shares of
restricted (i.e., nonvested) stock. For 1997, such restricted stock awards have
vesting provisions based on continued service (six years from grant date), with
earlier vesting possible after two years based upon attainment of a specified
price level of Liberty Financial's Common Stock. The Committee anticipates
granting similar option and restricted stock awards in 1998. In granting
awards, the Committee takes into account the executive's level of
responsibility, past contributions and anticipated ability to contribute to
Liberty Financial's future performance. The Committee also considers long-term
incentive practices of peer companies. Beginning in 1997, awards to persons who
are subject to the provisions of Section 16 of the Exchange Act are granted by
a subcommittee consisting of each member of the Committee other than Mr.
Countryman, who for purposes of Rule 16b-3 under the Exchange Act is not
considered to be a non-employee director of Liberty Financial.
1997 CEO Compensation
The Committee raised Mr. Leibler's base salary from $705,000 for 1996 to
$740,000 for 1997. The Committee in May, 1997 granted Mr. Leibler 60,000 stock
options and 13,500 shares of restricted stock (these share amounts reflect
Liberty Financial's December, 1997 3:2 stock split). In February, 1998 the
Committee awarded Mr. Leibler a bonus of $1,100,000 for 1997 performance. The
Committee determined that the base salary increase and stock grants were
merited by Mr. Leibler's performance in 1996, as reflected by the Company's
financial results in relation to corporate-wide targets for 1996, the
performance of Liberty Financial's Common Stock in 1996, and Mr. Leibler's
overall leadership and decision-making impact on the achievement of Liberty
Financial's business plan objectives in 1996. With respect to base salary, the
Committee also considered market benchmarks for base salaries of chief
executive officers at peer companies. With respect to the stock grants, the
Committee also sought to create a significant financial incentive to continue
the strategy of enhancing relationships among the subsidiaries' existing
operations, with a view toward increasing product sales, generating additional
expense savings, and thereby increasing Liberty Financial's profitability and
shareholder value.
In determining Mr. Leibler's 1997 bonus, the Committee considered the
Company's financial results in relation to corporate-wide targets for 1997 and
the performance of Liberty Financial's Common Stock in 1997. The Committee also
considered Mr. Leibler's overall leadership and decision-making impact on the
achievement of Liberty Financial's business plan objectives in 1997. The
Committee believes that these achievements were reflected in the increase in
the market value of Liberty Financial's Common Stock during 1997.
Deductibility of Executive Compensation under the Code
Under Section 162(m) of the Code, a publicly held corporation cannot
deduct in any taxable year compensation in excess of one million dollars paid
to each of its CEO and its four other most highly compensated officers.
However, the deduction limitation of Section 162(m) does not apply to certain
performance-based compensation arrangements.
In the case of Liberty Financial, annual cash bonuses and restricted stock
awards can trigger the Section 162(m) deduction limitation. The Code and
Internal Revenue Service regulations under Section 162(m) provide that, with
10
<PAGE>
respect to annual cash bonuses, in order to assure deductibility of any bonus
compensation that may bring total compensation over the million dollar limit, a
rigid "formula type" bonus approach must be used with only limited Committee
discretion permitted. The Committee believes that judgment and discretion are
critical to effective performance assessment as well as related bonus
determinations. The Committee therefore has decided not to adopt such a rigid
formula-type bonus plan at this time. Thus, any payments to those five
executive officers in excess of the limit resulting from such cash bonuses may
not be deductible for tax purposes. Liberty Financial's stock-based
compensation programs generally have been designed and administered so that
compensation in respect of outstanding stock options will not be subject to the
limitation on deductibility under Section 162(m). However, because Liberty
Financial's existing restricted stock awards vest after six years of continued
employment regardless of other performance-based criteria, Liberty Financial
will be unable to deduct an amount equal to taxable income to the officer at
vesting (equal to the then market value of the shares) to the extent the
million dollar cap is exceeded. Similarly, to that extent, Liberty Financial
would be unable to deduct dividends paid to the officer on his restricted stock
(which dividends are compensation for tax purposes). The Committee believes
that such guaranteed time-lapse vesting is an extremely valuable tool in
retaining the select group of executives eligible for restricted stock grants.
The Committee has concluded that the near-term impact of these provisions on
Liberty Financial's tax reporting will not be material. The Committee will
continue to monitor the impact of Section 162(m) on an ongoing basis in order
to balance the benefits of favorable tax treatment for Liberty Financial with a
need to apply prudent judgment in carrying out the Committee's compensation
philosophy with respect to the applicable executive officers.
Members of the Compensation Committee
The members of the Committee submitting this report are:
Gregory H. Adamian
Michael J. Babcock
Gary L. Countryman
Paul J. Darling, II
John P. Hamill
Ray B. Mundt (Chairman)
Executive Compensation Tables and Information
The tables that appear below, along with the accompanying text and
footnotes, provide information on compensation and benefits for the named
executive officers, in accordance with applicable SEC requirements. All the
data regarding values for stock options are hypothetical in terms of the
amounts that an individual may or may not receive, because such amounts are
contingent on continued employment with Liberty Financial and the price of the
Common Stock. All year-end values shown in these tables for outstanding stock
options reflect a price of $37.75 per share, which was the closing price of the
Common Stock on December 31, 1997. All share and per share dollar amounts in
the tables below reflect Liberty Financial's December, 1997 stock split. None
of the named executive officers received any perquisites during 1997 exceeding
the lesser of $50,000 or 10% of such officer's total salary and bonus for such
year.
Summary Compensation Table. The following table sets forth compensation
information for the past three fiscal years for each of Liberty Financial's
chief executive officer and the other four most highly compensated executive
officers:
11
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------- -----------------------------
Awards
-----------------------------
Restricted Securities
Name and Principal Base Stock Underlying All Other
Position during 1997 Year Salary ($) Bonus ($)(1) Awards ($)(2) Options (#) Compensation ($)(3)
- --------------------------- ------ ------------ ------------ ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth R. Leibler 1997 740,000 1,100,000 384,750 60,000 46,379
President and Chief 1996 705,000 750,000 -- 90,000 48,475
Executive Officer 1995 655,000 491,000 -- 57,000 40,538
Harold W. Cogger(4) 1997 475,000 451,250 -- 27,000 40,854
Executive Vice President 1996 450,000 478,350(5) -- 27,000 40,854
1995 425,000 516,250(5) -- -- 40,854
C. Allen Merritt 1997 425,000 350,000 213,750 23,252 20,005
Executive Vice President 1996 293,000 200,000 -- 27,000 17,175
and Treasurer 1995 275,000 135,000 -- 16,500 15,280
John W. Rosensteel 1997 420,000 330,000 149,625 18,750 26,937
President and Chief 1996 396,500 275,000 -- 22,500 27,994
Executive Officer of 1995 381,150 187,000 -- 22,500 31,535
Keyport Life Insurance
Company
John A. Benning 1997 318,000 196,715 85,500 9,750 19,730
Senior Vice President 1996 318,000 171,720 -- 22,500 21,947
and General Counsel 1995 303,000 145,000 -- 16,500 20,963
</TABLE>
- ------------
(1) The amounts presented are bonuses earned in 1997 and paid in 1998, earned in
1996 and paid in 1997, or earned in 1995 and paid in 1996, respectively.
(2) The number of shares and value of restricted stock held by the named
executive officers as of December 31, 1997 is as follows: Mr. Leibler:
13,500 shares, $509,625; Mr. Merritt: 7,500 shares, $283,125; Mr.
Rosensteel: 5,250 shares, $198,188; Mr. Benning: 3,000 shares, $113,250. All
such shares will vest any time after May 13, 1999 if for a 10 consecutive
trading-day period, the closing price of Liberty Financial's Common Stock
exceeds $41.73. To the extent Liberty Financial pays dividends on such
shares, the recipients are entitled to retain all such dividends regardless
of any future forfeitures.
(3) Consists of (a) insurance premiums paid by Liberty Financial during 1997
with respect to term life insurance for the benefit of the named executive
officers, individually as follows: Mr. Leibler, $2,500; Mr. Cogger, $18,354;
Mr. Rosensteel, $5,000; and Mr. Benning, $3,459; and (b) contributions for
1997 under defined contribution plans for the benefit of the named executive
officers, individually as follows: Mr. Leibler, $43,879; Mr. Cogger,
$22,500; Mr. Merritt, $20,005; Mr. Rosensteel, $21,937; Mr. Benning,
$16,271.
12
<PAGE>
(4) Mr. Cogger became an executive officer of Liberty Financial effective March
27, 1995 in connection with Liberty Financial's acquisition of Colonial.
(5) Does not include a long-term incentive plan award made to Mr. Cogger in 1995
payable not later than March, 1998 and described in the long-term incentive
plan awards table appearing in Liberty Financial's 1996 Proxy Statement.
Option Grant Table. The following table sets forth certain information
regarding options to purchase Common Stock granted during 1997 by Liberty
Financial to the executive officers named in the above summary compensation
table.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Percent of Potential Realizable
Number of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation for
Options Employees Price Per Option Term(2)($)
Name Granted (#) in 1997 Share ($) Expiration Date(1) 5% 10%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth R. Leibler 60,000 7.7% $28.50 05/13/07 1,075,410 2,725,300
- -------------------------------------------------------------------------------------------------------------------
Harold W. Cogger 27,000 3.5% $28.50 05/13/07 483,934 1,226,385
- -------------------------------------------------------------------------------------------------------------------
C. Allen Merritt 23,252 3.0% $28.50 05/13/07 416,757 1,056,144
- -------------------------------------------------------------------------------------------------------------------
John W. Rosensteel 18,750 2.4% $28.50 05/13/07 336,066 851,656
- -------------------------------------------------------------------------------------------------------------------
John A. Benning 9,750 1.3% $28.50 05/13/07 174,754 442,861
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Each option becomes exercisable in four equal annual installments,
commencing on May 14, 1998 and vests in full upon the death, disability or
retirement (after age 60) of the optionee.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if such options are not exercised until the end of the
option term. These gains are based on assumed rates of stock price
appreciation of 5% and 10% in accordance with applicable regulations of the
SEC, compounded annually from the dates the options were granted until their
expiration dates and, therefore, are not intended to forecast possible
future appreciation in the Common Stock. This table does not take into
account appreciation in the price of the Common Stock after the date of
grant.
Option Exercises and Year-End Option Table. The following table sets forth
certain information regarding the stock options exercised during 1997 and stock
options held as of December 31, 1997 by the executive officers named in the
above summary compensation table.
13
<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Aggregate Option
Values at Fiscal Year-End
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Year-End (#) Year-End ($)
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth R. Leibler 114,000 3,245,075 383,724 193,445 $10,259,878 $3,044,908
- ---------------------------------------------------------------------------------------------------------------------
Harold W. Cogger 37,500 1,281,000 61,950 47,251 2,153,129 568,697
- ---------------------------------------------------------------------------------------------------------------------
C. Allen Merritt 37,285 870,564 90,027 59,242 2,540,026 871,879
- ---------------------------------------------------------------------------------------------------------------------
John W. Rosensteel 9,450 234,078 86,536 59,359 2,154,228 950,858
- ---------------------------------------------------------------------------------------------------------------------
John A. Benning 36,804 1,002,505 102,749 42,367 2,984,990 693,848
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain Additional Information Regarding Executive Officer Compensation
Defined Benefit Retirement Programs
With the exception of Mr. Cogger, each of the executive officers of
Liberty Financial named in the above summary compensation table participates in
Liberty Financial's Pension Plan and Supplemental Pension Plan (collectively,
the "Pension Plans"). In addition, (i) under his employment agreement, Mr.
Cogger is entitled to a pension benefit from Liberty Financial which is
calculated as if he participated in the Pension Plans, (ii) Mr. Benning has a
contractual relationship with Liberty Financial under which his benefits under
the Pension Plans shall be calculated using October 1, 1973 as his date of hire
for determining years of credited service, subject to certain adjustments, and
(iii) Mr. Rosensteel has a contractual relationship with Liberty Financial
under which his benefits under the Pension Plans shall be calculated using
September 21, 1990 as his date of hire for determining years of credited
service. The following table shows the estimated annual pension benefits
payable upon retirement for the specified compensation and years of service
classifications under the Pension Plans.
Estimated Annual Retirement Benefits at Age 65
Under Liberty Financial's Pension Plan and Supplemental Pension Plan
<TABLE>
<CAPTION>
Years of Credited Service
---------------------------------------------------------
Five-Year Average Compensation 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 52,178 $ 69,570 $ 86,963 $ 93,629 $100,296
400,000 106,178 141,570 176,963 190,296 203,629
600,000 160,178 213,570 266,963 286,963 306,963
800,000 214,178 285,570 356,963 383,629 410,296
1,000,000 268,178 357,570 446,963 480,296 513,629
1,200,000 322,178 429,570 536,963 576,963 616,963
</TABLE>
Benefits under the Pension Plans are based on an employee's average pay
for the five highest consecutive years during the last ten years of employment,
the employee's estimated social security retirement benefit and years of
credited service with Liberty Financial and its subsidiaries. The current
compensation covered by the Pension Plans and such additional contractual
arrangements for each participating executive officer of Liberty Financial
named in the above summary compensation table (treating Mr. Cogger as such) is
as follows: Mr. Leibler, $1,490,000; Mr. Cogger, $953,350; Mr. Merritt,
$625,000; Mr. Rosensteel, $695,000; and Mr. Benning, $489,720. For purposes
14
<PAGE>
of determining benefits payable upon retirement under the Pension Plans and
such additional contractual arrangements, compensation includes base salary and
annual bonus. Benefits are payable in the form of a single-life annuity
providing for monthly payments. Actuarially equivalent methods of payment may
be elected by the recipient. As of the date hereof, the executive officers of
Liberty Financial named in the above summary compensation table had the
following full credited years of service under the Pension Plans: Mr. Leibler,
7 years; Mr. Cogger, 3 years; Mr. Merritt, 10 years; Mr. Rosensteel, 7 years;
and Mr. Benning, 24 years.
Change of Control Provisions of 1990 Stock Option Plan
Liberty Financial's 1990 Stock Option Plan, as amended (the "1990 Plan"),
provided for the grant of options to officers and other key employees of
Liberty Financial for the purchase of shares of Common Stock. As of March 20,
1998, options to purchase an aggregate of 1,563,167 shares of Common Stock were
issued and outstanding under the 1990 Plan, including options to purchase
370,168 shares held by Mr. Leibler (332,724 of which were vested), 82,517
shares held by Mr. Merritt (75,027 of which were vested), 82,141 shares held by
Mr. Rosensteel (69,659 of which were vested) and 109,949 shares held by Mr.
Benning (102,459 of which were vested). No additional options will be granted
under the 1990 Plan. Upon a change of control of Liberty Financial (defined as
the transfer of 50% or more of the equity ownership of Liberty Financial other
than solely pursuant to a public offering in which securities are issued for
cash), all non-vested options will automatically vest and the Compensation
Committee may, in its discretion, elect to cancel all outstanding options by
paying the holders thereof an amount equal to the difference between the
formula value of the Common Stock (as defined in the 1990 Plan) and the
exercise price of the Options.
Compensation Committee Interlocks and Insider Participation
Gregory H. Adamian, Michael J. Babcock, Gary L. Countryman, Paul J.
Darling, II (effective May 13, 1997), John P. Hamill, Ray B. Mundt and Stanley
A. Wainer (prior to May 13, 1997) served as members of Liberty Financial's
Compensation Committee during 1997. The membership of Liberty Financial's
Compensation Committee is identical to the membership of the Compensation
Committee of the Board of Directors of Liberty Mutual. Mr. Countryman is Chief
Executive Officer of Liberty Mutual and is Chairman of Liberty Financial. Mr.
Countryman does not receive any compensation from Liberty Financial.
15
<PAGE>
Stockholder Return Comparisons
The graph below and the accompanying table compare the total return on
Liberty Financial's Common Stock since it became a publicly-traded corporation
(on March 27, 1995) to the S&P 500 Index (Standard & Poor's Corporation 500
Composite Stock Price Index) and the Dow Jones Life Insurance Group Index,
assuming an original investment on March 27, 1995 of $100. Total return values
for these indices were calculated based on cumulative total return values,
assuming reinvestment of dividends. The graph lines merely connect year-end
dates and do not reflect fluctuations between those dates.
[Tabular representation of line chart]
3/27/95 12/31/95 12/31/96 12/31/97
- --------------------------------------------------------------------------------
LIBERTY FINANCIAL COMPANIES $100.00 $109.80 $143.80 $211.90
- --------------------------------------------------------------------------------
S&P 500 $100.00 $125.40 $154.20 $205.60
- --------------------------------------------------------------------------------
DJ LIFE INSURANCE GROUP $100.00 $117.80 $156.40 $232.60
- --------------------------------------------------------------------------------
16
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Matters Pertaining to Liberty Mutual
General
Prior to the acquisition of Colonial in March, 1995, Liberty Financial was
an indirect wholly owned subsidiary of Liberty Mutual. As of the Record Date,
Liberty Mutual owned beneficially approximately 73.1% of the outstanding shares
of Common Stock and approximately 72.3% of the combined voting power of the
outstanding Common Stock and Preferred Stock.
Liberty Mutual is a Massachusetts-chartered property and casualty mutual
insurance company with more than $25.2 billion in assets and $6.9 billion in
surplus at December 31, 1997. The principal business activities of Liberty
Mutual's subsidiaries and affiliates (other than Liberty Financial) are
property-casualty insurance, insurance services and life insurance (including
group life and health insurance products) marketed through its own sales force.
Although at present 15 of Liberty Financial's 18 current directors are
also directors of Liberty Mutual, Liberty Financial's operations are separate
from, and generally have been conducted independently of, Liberty Mutual and
its other business activities. Liberty Financial and its operating subsidiaries
have their own personnel responsible for operations, strategic planning,
marketing, finance, administration, human resources, accounting, legal and
other management functions.
Reimbursement of Certain Direct Costs and Intercompany Agreement
Liberty Mutual from time to time has provided management, legal, internal
audit and treasury services to Liberty Financial, as well as to other Liberty
Mutual subsidiaries which services are of the type normally performed by a
parent company's corporate staff. In connection with the Colonial acquisition,
Liberty Financial and Liberty Mutual entered into an Intercompany Agreement
(the "Intercompany Agreement") governing ongoing services provided by Liberty
Mutual to Liberty Financial. Under the Intercompany Agreement, such services
are provided only as requested by Liberty Financial and may include legal, tax,
treasury and certain other services. Liberty Financial pays Liberty Mutual a
fee based upon Liberty Mutual's direct costs allocable to the services
provided, and reimburses Liberty Mutual for all associated out of pocket fees
and expenses incurred by it. The agreement provides for estimated quarterly
payments and subsequent adjustments thereto based upon actual experience. For
1997, Liberty Financial paid Liberty Mutual $700,000 for services under the
Intercompany Agreement.
The Intercompany Agreement also provides that, during any period in which
Liberty Mutual owns at least 20% of the voting power of the outstanding capital
stock of Liberty Financial, Liberty Financial will provide Liberty Mutual with
certain financial and other information. During any period in which Liberty
Mutual owns at least 50% of the voting power of the outstanding capital stock
of Liberty Financial or in which Liberty Mutual is required or elects to
consolidate Liberty Financial's financial results in its own financial
statements, Liberty Financial must obtain Liberty Mutual's prior written
consent to any significant changes in accounting principles of Liberty
Financial.
In addition, the Intercompany Agreement provides that Liberty Financial
will indemnify Liberty Mutual, its subsidiaries (other than Liberty Financial
and its subsidiaries), and each of their respective officers, directors,
employees, and agents against losses from third-party claims based on, arising
out of or resulting from (i) the activities of Liberty Financial or its
subsidiaries (including without limitation liabilities under the Securities Act
of 1933, as amended (the "Securities Act"), the Exchange Act and other
securities laws) and (ii) any other acts or omissions arising out of
performance of the Intercompany Agreement.
17
<PAGE>
Tax Sharing Agreement
Liberty Financial and its subsidiaries (except for Keyport Life Insurance
Company ["Keyport"] and its subsidiaries, each of which filed a separate
federal income tax return through 1993) have been included in the consolidated
federal income tax return filed by Liberty Mutual. With respect to all periods
through July 17, 1997 (the "Deconsolidation Date"), in accordance with the
Code, Liberty Mutual included or will include Liberty Financial and its
subsidiaries in its consolidated federal income tax returns. (Liberty Mutual
owned at least 80% of the outstanding stock of Liberty Financial during such
periods). Prior to 1994, when Keyport and its subsidiaries became eligible for
inclusion in Liberty Mutual's consolidated tax return, each of Keyport and its
subsidiaries determined separately its liability for federal income taxes.
Liberty Financial and Liberty Mutual have entered into a formal Tax
Sharing Agreement (the "Tax Sharing Agreement"). The Tax Sharing Agreement
provides for the allocation between Liberty Financial and Liberty Mutual of the
liability for federal income taxes and foreign, state, and local income,
franchise, or excise taxes, and details the methodology and procedures for
determining the payments or reimbursements to be made by or to Liberty
Financial with respect to such taxes. The Tax Sharing Agreement applies
primarily to taxable years or periods beginning on or after January 1, 1990 and
ending before or on the Deconsolidation Date.
Liberty Mutual's ownership of the outstanding capital stock of the Company
fell below 80% effective on the Deconsolidation Date. As a result, Liberty
Financial will no longer be included in the consolidated federal and certain
other income tax returns filed by Liberty Mutual for periods beginning on or
after the Deconsolidation Date. The Tax Sharing Agreement generally will no
longer be in effect, except for certain provisions that may affect carryovers
and carrybacks of net operating losses or other tax attributes and subsequent
examination adjustments by taxing authorities (as described below). Liberty
Mutual's 1997 consolidated federal income tax return will include Liberty
Financial and its subsidiaries until the Deconsolidation Date. Subsequently,
the Company and its subsidiaries will file consolidated federal income tax
returns, except for Keyport and Keyport's subsidiaries. For the remainder of
1997 and the five full tax years subsequent, Keyport and its subsidiaries will
file separately from the Company, after which period Keyport and its current
subsidiaries again can be included in the Company's consolidated federal income
tax returns.
The Tax Sharing Agreement generally provides with respect to periods prior
to deconsolidation, among other things, that Liberty Financial will pay to
Liberty Mutual an amount for federal income tax purposes determined as if
Liberty Financial filed a separate consolidated federal income tax return for
Liberty Financial and its subsidiaries (i.e., as if Liberty Financial were the
common parent of an affiliated group including its subsidiaries but not
including Liberty Mutual and its other subsidiaries [in each case excluding
Keyport and its subsidiaries for periods prior to 1994]), regardless of the
amount of federal income tax shown on the actual consolidated federal income
tax return filed by Liberty Mutual on behalf of its entire affiliated group
(including Liberty Financial and its subsidiaries). The determination of the
amounts paid by Liberty Financial pursuant to the Tax Sharing Agreement
generally takes into account carryovers and carrybacks of net operating losses
and other attributes, again as if Liberty Financial and its subsidiaries (other
than Keyport and its subsidiaries for periods prior to 1994) independently
filed a consolidated federal income tax return for such periods.
The Tax Sharing Agreement further provides that, with respect to periods
prior to deconsolidation, Liberty Financial pays to Liberty Mutual amounts for
foreign, state, or local income, franchise, or excise taxes on a basis
consistent with the methodology for determining federal income tax payments,
except that Liberty Financial generally does not pay for a taxable year an
amount that exceeds the total liability shown on the combined, joint,
consolidated, or similar return actually filed on behalf of Liberty Mutual
and/or any of its other subsidiaries together with Liberty Financial and/or any
of its subsidiaries (with subsequent adjustments as appropriate, however, to be
taken into account where tax payments have been so limited in a prior year).
18
<PAGE>
The Tax Sharing Agreement also provides for procedures with respect to
adjustments to tax payments or reimbursements resulting from audits or other
proceedings with respect to taxable years for which Liberty Financial and/or
its subsidiaries have been included with Liberty Mutual and/or its other
subsidiaries in any consolidated federal income tax return or any combined,
joint, consolidated, or similar foreign, state, or local income, franchise, or
excise tax return. In addition, while the Tax Sharing Agreement generally
applies to taxable years in which Liberty Financial has been or will be
included in a consolidated federal income tax return filed by Liberty Mutual,
it also contains provisions that may affect carryovers or carrybacks of net
operating losses or other tax attributes from or to taxable years prior or
subsequent to such consolidation.
For 1997, Liberty Mutual refunded to Liberty Financial $19.2 million
pursuant to the Tax Sharing Agreement.
As the common parent of an affiliated group filing a consolidated federal
income tax return and under the terms of the Tax Sharing Agreement, Liberty
Mutual has various rights. Among other things, for periods prior to
deconsolidation, Liberty Mutual is the sole and exclusive agent for Liberty
Financial in any and all matters relating to the U.S. income tax liability of
Liberty Financial, Liberty Mutual has sole and exclusive responsibility for the
preparation and filing of the U.S. consolidated federal income tax return for
such affiliated group, and Liberty Mutual has the power, in its sole
discretion, to contest or compromise any asserted tax adjustment or deficiency
and to file, litigate, or compromise any claim for refund on behalf of Liberty
Financial.
Registration Rights Agreement
In connection with the Colonial acquisition, Liberty Financial and Liberty
Mutual entered into a Registration Rights Agreement (the "Registration Rights
Agreement") which, among other things, provides that Liberty Financial will,
upon Liberty Mutual's request, register under the Securities Act any of the
shares of Common Stock currently held indirectly or hereafter acquired directly
or indirectly by Liberty Mutual for sale in accordance with Liberty Mutual's
intended method of disposition thereof, and will take such other actions
necessary to permit the sale thereof in other jurisdictions. Liberty Mutual has
the right to request up to three such registrations per year, subject to
certain minimum share requirements. Liberty Mutual has agreed to pay the costs
and expenses in connection with each such registration of its shares. Liberty
Financial has the right (exercisable not more than once in any 12-month period)
to require Liberty Mutual to delay any exercise by Liberty Mutual of such
rights to require registration and other actions under the agreement for a
period of up to 120 days if Liberty Financial determines, and the underwriters
concur, that any other offerings by Liberty Financial then being conducted or
about to be conducted would be adversely affected, or if Liberty Financial
determines that it would be required to disclose publicly material business
information which would cause a material disruption of a major corporate
development then pending or in progress or that such registration would have
other material adverse consequences.
Liberty Mutual also has the right, which it may exercise at any time and
from time to time in the future, to include the shares of Common Stock held
directly or indirectly by it in certain other registrations of common equity
securities of Liberty Financial initiated by Liberty Financial on its own
behalf. Liberty Mutual has agreed to pay its pro rata share of all costs and
expenses in connection with each such registration.
Each of Liberty Financial and Liberty Mutual will indemnify the other, and
the officers, directors and controlling persons of the other, against certain
liabilities arising in respect of any registration or other offering under the
Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, Liberty Mutual paid
directly, or reimbursed Liberty Financial for its payment of, expenses totaling
$445,000 incurred for Liberty Financial's 1997 secondary offering.
Certain Other Transactions Involving Liberty Mutual
Immediately prior to the Colonial acquisition, Liberty Mutual and two of
its affiliates loaned an aggregate of $100.0 million (collectively, the
"Colonial Acquisition Loan") to Liberty Financial, the proceeds of which were
19
<PAGE>
used to fund the cash portion of the purchase price in the acquisition. The
Colonial Acquisition Loan is evidenced by notes in the aggregate principal
amount of $100.0 million bearing interest at up to 8.5% per annum, payable
semiannually. The entire principal amount of such notes is payable on the tenth
anniversary of issuance. Liberty Mutual and its affiliates have the right to
accelerate Liberty Financial's obligations under the Colonial Acquisition Loan
if Liberty Mutual ceases to own a majority of the outstanding Common Stock. The
Colonial Acquisition Loan is subject to a prepayment penalty in the form of a
"make whole" provision. Under the "make whole" provision, the prepayment
penalty would be an amount equal to the present value, as of the prepayment
date, of the loss of investment income resulting from the interest rate
differential on the principal amount prepaid between 8.5% and the yield to
maturity, as of such date, on U.S. Government Securities maturing on the due
date of the Colonial Acquisition Loan notes.
In January, 1995, a wholly owned subsidiary of Liberty Financial issued a
$30.0 million principal amount promissory note to LFC Holdings. This note bears
interest, payable semi-annually, at 8.0% per annum, with the entire principal
amount being payable (without scheduled mandatory prepayments) on March 31,
2000. Such note may be prepaid without penalty or premium at any time.
In December, 1993, an affiliate of Liberty Mutual made a loan in the
principal amount of $75.0 million to Liberty Financial. In connection with the
financing for Liberty Financial's acquisition in April, 1995 of Newport Pacific
Management, Inc. ("Newport Pacific"), an affiliate of Liberty Mutual loaned
approximately $24.0 million to Liberty Financial. At that time, both of these
loans were combined into a single note in the principal amount of $99.0 million
which bears interest at 8.0% per annum. This note is due and payable on March
31, 2000, and may be prepaid, without penalty or premium, at any time.
Liberty Financial has made to date all required interest payments on the
above-described indebtedness to Liberty Mutual and its affiliates.
Colonial is a party to a revolving credit agreement with The First
National Bank of Boston and certain other lenders pursuant to which the lenders
have agreed to lend up to $60.0 million to Colonial. The proceeds of the loans
made under this credit agreement are used to finance the sale of shares of the
mutual funds sponsored by Colonial which are sold with contingent deferred
sales charges. Liberty Mutual has guaranteed such loans. As consideration for
this guarantee, Liberty Mutual receives a fee from Colonial equal to the sum of
(i) a percentage of any interest rate and other savings which Colonial receives
as a result of the guarantee, determined by subtracting the percentage equal to
Liberty Mutual's direct or indirect equity interest from time to time in
Liberty Financial, calculated on a fully diluted basis, from 100%, and (ii)
0.15% of the average outstanding borrowings under the credit agreement. The
aggregate guarantee fee accrued in 1997 by Colonial for payment to Liberty
Mutual was $105,000.
Keyport has a sales arrangement with Liberty Life Assurance Company of
Boston ("Liberty Life"), a subsidiary of Liberty Mutual which is licensed to
sell variable annuity contracts in the State of New York. Liberty Life issues
variable annuity contracts in New York with substantially the same policy terms
and underlying investment options as Keyport's variable annuity products, the
premiums for which are deposited in a separate account of Liberty Life. Keyport
provides administrative services to Liberty Life with respect to such
annuities. All contractual obligations in respect of such annuities are those
of Liberty Life rather than of Keyport. Liberty Life charges the fees payable
under the annuities, pays Keyport a fee designed to cover Keyport's expenses in
administering these annuities, and retains the balance. During 1997 Liberty
Life paid Keyport fees of $70,000 under these arrangements.
The Company provides certain investment management services to Liberty
Mutual. Liberty Mutual paid the Company $855,000 for these services in 1997. In
addition, Liberty Financial provides investment advisory services to oil and
gas investment subsidiaries of Liberty Mutual. These subsidiaries reimburse
Liberty Financial for all direct out-of-pocket costs for these services. These
cost reimbursements totaled $510,000 in 1997.
20
<PAGE>
As of December 31, 1997, Liberty Mutual and Liberty Fire owned
approximately 7.6% and 0.9%, respectively, of the outstanding shares of
beneficial interest of Liberty All-Star Equity Fund, a closed-end fund listed
on the New York Stock Exchange. All of such shares were purchased in open
market transactions. Liberty Asset Management Company, a Liberty Financial
subsidiary, is the investment adviser to the fund.
Keyport holds mortgage notes in the original principal amount of $100.0
million on properties owned by certain indirect subsidiaries of Liberty Mutual.
The notes were purchased for a price equal to their face value. Liberty Mutual
has agreed to provide credit support to the obligors under these notes with
respect to certain payments of principal and interest thereon. As of December
31, 1997, the principal amount outstanding was $39.5 million.
The existing and proposed agreements between Liberty Financial and Liberty
Mutual may be modified in the future and additional transactions or agreements
may be entered into between Liberty Financial and Liberty Mutual. Conflicts of
interest could arise between Liberty Financial and Liberty Mutual with respect
to any of the foregoing, or any future agreements or arrangements between them.
Neither Liberty Mutual nor Liberty Financial has instituted, or has any current
plans to institute, any formal plan or arrangement to address any possible
conflicts of interest.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Liberty Financial for the year
ended December 31, 1997 have been audited and reported upon by Ernst & Young
LLP ("E&Y"). Similarly, E&Y will serve as the independent auditors of Liberty
Financial for 1998. Representatives of E&Y are expected to be present at the
Meeting to respond to appropriate questions and will have the opportunity to
make a statement if they so desire.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholders who wish to submit proposals pursuant to Rule 14a-8 under the
Exchange Act at the 1999 Annual Meeting of Stockholders will be required to
deliver the proposals to Liberty Financial on or prior to November 28, 1998.
Liberty Financial's Restated By-Laws also contain certain provisions which
impose additional requirements upon the submission by stockholders of nominees
for election to the Board of Directors and other Stockholder proposals. Please
forward any such proposals or the required notices to the Clerk of Liberty
Financial, John A. Benning, c/o Liberty Financial Companies, Inc., 600 Atlantic
Avenue, Suite 2400, Boston, Massachusetts 02210-2214.
21
<PAGE>
BY-LAWS
A copy of the Restated By-Laws, as amended, of Liberty Financial may be
obtained without charge by a Stockholder upon written request addressed to the
Clerk of Liberty Financial at the address set forth above under "SUBMISSION OF
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING." Copies of the such Restated
By-Laws also will be made available at the Meeting. Liberty Financial amended
the Restated By-laws in February, 1998 to change the day of its Annual Meeting
from the second Wednesday in May to the second Monday in May.
EXPENSES OF SOLICITATION
Liberty Financial will bear the cost of preparing, assembling and mailing
the Notice, Proxy Statement and form of proxy for the Meeting. Solicitation of
proxies will be primarily through the use of the mails, but employees of
Liberty Financial may solicit proxies, by personal interview, by telephone or
by other means of communication, without additional compensation. Liberty
Financial will also provide persons, firms, banks and corporations holding
shares in their names, or in the names of their nominees, which in either case
are beneficially owned by others, proxy material for transmittal to such
beneficial owners and reimburse such record holders for their reasonable
expenses in so doing.
OTHER MATTERS
Liberty Financial has no knowledge of any matters to be presented for
action by the Stockholders at the Meeting other than as set forth above.
However, the enclosed proxy gives discretionary authority to the persons named
therein to act in accordance with their best judgment in the event that any
additional matters should be presented.
ANNUAL REPORT
A copy of Liberty Financial's Annual Report to Stockholders for the year
ended December 31, 1997, which includes financial statements, is being mailed
to Stockholders with this Proxy Statement. The Annual Report is not to be
regarded as proxy soliciting material.
Copies of Liberty Financial's Annual Report to Stockholders and of its
Annual Report to the Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1997 will be made available at the Meeting and also may
be obtained without charge by any Stockholder upon written request addressed to
Director of Investor Relations, Liberty Financial Companies, Inc., 600 Atlantic
Avenue, Suite 2400, Boston, Massachusetts 02210-2214.
By Order of the Board of Directors,
John A. Benning
Clerk
Dated: March 27, 1998
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LFC-PS-98
<PAGE>
PROXY
LIBERTY FINANCIAL COMPANIES, INC.
Proxy Solicited on Behalf of the Board of Directors
of the Company for Annual Meeting, May 11, 1998
The undersigned hereby constitutes and appoints Kenneth R. Leibler, C.
Allen Merrit, Jr., John A. Benning and Kevin M. Carome, and each of them, his or
her true and lawful agents and proxies with full power of substitution in each,
to represent the undersigned and vote all shares of Common Stock or Series A
Convertible Preferred Stock of the undersigned at the Annual Meeting of
Stockholders of LIBERTY FINANCIAL COMPANIES, INC., to be held in room AV-1, on
the third floor of the Federal Reserve Bank of Boston, 600 Atlantic Avenue,
Boston, Massachusetts on Monday, May 11, 1998, and at any adjournment thereof,
on all matters coming before said meeting. The undersigned hereby revokes any
Proxy previously given and acknowledges receipt of the related Notice of Annual
Meeting and Proxy Statement and a copy of the Annual Report for the year ended
December 31, 1997.
You are encouraged to specify your choice by marking the appropriate box,
SEE REVERSE SIDE, but you need not mark any box if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxies cannot
vote your shares unless you sign and return this card.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<PAGE>
[X] Please mark
votes as in
this example
This proxy, when properly executed, will be voted in the manner directed herein
and authorizes the Proxies to take action in their discretion upon other matters
that may come before the meeting. If no direction is made, this proxy will be
voted FOR the election of all nominees for director.
1. Election of Directors.
Nominees for terms expiring at 2001 Annual Meeting of Stockholders:
Gerald E. Anderson, Edmund F. Kelly, Kenneth R. Leibler,
Ray B. Mundt and Glenn P. Strehle
[ ] FOR [ ] WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
[ ] ______________________________________
For all nominees except as noted above
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign exactly as your name appears hereon.
Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such.
Signature: ________________________________________ Date: ___________________
Signature: ________________________________________ Date: ___________________
